Construction Market Insight

2022 World Cup to change Qatar’s air-conditioning market Air-conditioning systems have become core building blocks for modern infrastructure. With increasing construction activities and rising government spending towards infrastructure

development, demand for air-conditioners in Qatar is expected to surge in the next six years. Ahead of 2022, the preparations for the World Cup will

be complemented by growth in all sub-sectors of the real estate sector.

The football tournament is anticipated to drive investments of more than USD300 billion (QAR1.09 trillion) in Qatar to build the necessary infrastructure. Construction and renovation of stadiums along with Airport City, Doha Metro, Energy City, and Msheireb Downtown Doha projects are expected to significantly boost the HVAC market in the coming years.
According to 6Wresearch, Qatar’s air-conditioning market is projected to grow at a compound annual growth rate (CAGR) of 13.4 percent between 2015 and 2021. While the demand for centralised, ducted and packaged air-conditioners is growing at a significant pace, the window air-conditioner market is expected to go down in the forecast period. Furthermore, the centralised air-conditioning segment shares a key portion of the market pie and is expected to maintain its market dominance through the forecast period. The share of centralised air-conditioning is anticipated to cross 50 percent by 2021, owing to the nature of mega projects being built.

Qatar’s air-conditioning market is projected to grow at a compound annual growth rate of 13.4 percent between 2015 and 2021. A key factor impacting Qatar’s HVAC market would also be the government’s focus on deploying energy-efficient systems for long-term sustainability. In February this year, Qatar’s Ministry of Environment announced phasing out the sale of conventional air-conditioners, to be replaced with energy-efficient systems by September. Replacing existing window and split air-conditioners with energy-efficient systems would mean about 30 percent cut in electricity consumption. Similarly, in 2013, Qatar set three stars as the minimum energy-efficiency rating for air-conditioners in the market, which meant up to 12 percent energy conservation compared to unclassified appliances with a lower rating standard.

With green credentials already a requirement for government projects, private projects are expected to follow the lead in the near future. The repercussions of such a mandate would be massive for Qatar’s HVAC market, which is primarily import driven. Almost all companies operating here are either assembling or importing air-conditioners from Asian or other Middle Eastern countries. Some leading players in the market include Carrier, Trane, York, Daikin, Petra, Mitsubishi, SKM, Fujitsu General, LG, Gree, Samsung, and Rheem.
As of now, considering the ongoing and planned infrastructure development activities, the revenue of the Gulf Cooperation Council’s air-conditioning market is expected to increase by almost 3.5 percent. While Saudi Arabia and the United Arab Emirates would continue to dominate the region through the forecast period, Qatar’s air-conditioning market is expected to have a higher CAGR over the next six years.

Qatar’s real estate to remain stable in 2016, despite oil price dip
In 2016, Qatar is expected to have a fiscal deficit for the first time in the past 15 years, a situation which is expected to stay unless oil prices do not move beyond USD70 (QAR255) per barrel range. Lower oil prices for the next four to five years could mean a cumulative deficit between QAR200 and QAR300 billion. However, markets are hopeful that oil prices would move upward, and the impact will not be this severe.

The country’s real estate market, especially residential and retail, are highly dependent on the government spending on capital and current expenditures. Given Qatar is facing a fixed deadline for the 2022 World Cup, major capital expenditure increased in 2015, but the government was successful in bringing down the current expenditure (not including wages and salaries) level by a whopping 45 percent. That said, the country is expected to continue spending on the committed capital projects (although certain projects integral to the World Cup have been prioritised with increased efficiency), which should keep the market stable for a significant period, and hence would not bring any sudden impact on the real estate sector.
Therefore, in our view, Qatar’s real estate market is expected to remain stable in 2016. We do expect some corrections in the land property transactions. If we analyse the property prices growth, land price in Qatar alone has doubled over the past few years. Given this price surge, most of the projects have become unprofitable. We believe the year 2016 will be a year of market correction. Based on the recent trends, the land prices in Doha, Rayyan and Wakra have already started exhibiting signs of reduced speculation.
Real estate transactions in Qatar are still dominated by land transactions – an indicator that it still is in an early stage of development.
Historically, Qatar has not been a destination for significant external investment. Given real estate markets are expected to be stable over the next few years, oil prices climbing back to comfortable levels, and also in view of the maturing of Qatar’s legal and regulatory system, we believe the investors would start to prefer Qatar. Based on our discussions with developers, we understand that property transactions and new purchases are happening, but at discounted prices. The same is expected to continue in 2016.
In general, real estate transactions in Qatar are still dominated by land transactions – an indicator that it still is in an early stage of development. However, there are signs of emerging maturity, which is evident from the fact that the proportion of land transactions have come down to around 35 percent in 2015 from 69 percent in 2011. For most developed markets, this ratio has been seen to be in the range of five and 10 percent.

Subsector overview
In Qatar’s residential asset class, we see a high captive demand for the middle-income segment category housing, resulting in very high occupancy of more than 80 percent. However, for the luxury apartments and villas, occupancy is significantly lower. We foresee no major deviation in this trend until the supply in the middle-income segment matches the inherent demand. This may also mean marginal growth in the low- to middle-income segment, given the continued demand-supply mismatch.

Speaking of commercial properties, the current occupancy level in office real estate in Qatar is around 65 to 70 percent. We foresee this will remain stable in the next few quarters, with a slight upward push in occupancy due to an increase in skilled white-collar workforce in the near future at a faster rate than the quantum of future supply.
Last year, Qatar witnessed an addition of 5000 keys to its hospitality stock, while approximately 8000 keys are expected to be added in 2016. Assuming 60 to 70 percent of this planned supply actually hits the market, downward pressure on occupancy and prices is inevitable. Signs of pressure in occupancy and prices are visible now, as occupancy in February 2016 was 16 percent lower than the occupancy during a similar period last year.

On the retail front, the current supply of major organised retail developments is around 850,000 square metres (sqm), and the occupancy is around 90 percent. Close to 1.5 million sqm of additional future supply is at various stages of construction, and will be delivered in the coming quarters. As a result, we foresee a significant price correction in the organised retail category with a shift towards partial transference of the business risk from tenants to developers, that is from a pure rental model to a revenue-sharing model in the coming years. Major malls currently in the pipeline include the Mall of Qatar, Doha Mall, Tawar Mall, Doha Festival City, Northgate Mall, Markhiya Mall, and Place Vendôme Qatar.

Smart Buildings: A sustainable alternative to Qatar’s conventional construction
In the real estate market, owners are bringing value to tenants and providing enhanced visitor and occupant experiences with the rising use of digital technologies and by embracing the Internet of Things (IoT). They provide an ecosystem wherein large volumes of data collected and analysed, especially in buildings, helps create environments that are more personalised, efficient, functional and profitable.

In a digital world, buildings are becoming more connected and increasingly intelligent with software platforms that allow the convergence of systems to enhance productivity, prepare for greater physical and cyber security, and reduce carbon footprint through data analytics.
With an explosion in the mobile workforce as well as consumers, digital transformation will be necessary in the real estate sector and will play a crucial role in the way they work, shop and live. For offices, it will enable employees to work anywhere, anytime, and will determine how they are more connected, in addition to facilitating greater collaboration and raising productivity.

The use of digital technology in retail environments increases the value to tenants, which helps boost their revenue streams and generates higher levels of operating efficiencies. Consumers on the other hand gain tremendously from smart technology, including better climate control, digital signage, internet access, voice and video services, security, and online shopping, etcetera.
Within Qatar, one of the most striking examples of the use of ‘smart’ initiatives is the Lusail City project.

Within Qatar, one of the most striking examples of the use of ‘smart’ initiatives is the Lusail City project, which includes islands and multipurpose residential, mixed-use, entertainment and commercial districts, that will deliver efficient and sustainable services through an integrated ICT infrastructure.

The PwC-sponsored report titled Global Construction 2030: A Global Forecast for the Construction Industry to 2030 reveals that global construction will grow by 85 percent to USD15.5 trillion (QAR56.4 trillion) by 2030, with commercial and institutional buildings accounting for approximately one-third of the spend. It is estimated that commercial and institutional buildings account for about 25 percent of total energy consumption with over 30 percent of this energy taken up by heating, ventilation and air-conditioning (HVAC) systems, and 25 percent by lighting. Currently, almost one-third wastage of this energy is due to obsolete systems, inefficient design and wasted resources.

Across the globe, there are rising energy costs, drastic environment apprehensions, and more governments laying down laws to curb environmental disaster. New technologies are available to help in measuring, reporting and reducing the power consumption of the network infrastructure and attached devices, and help in achieving lower energy costs and better sustainability.
The network forms the foundation for an intelligent building infrastructure that adds value to every kind of real estate project. By combining different networks such as light, air, physical security, waste management, among others, on the IP network, it is possible to manage buildings more efficiently and provide comfort for the occupants.

For instance, in an integrated energy management system, building managers can switch off or reduce unneeded systems. Centralised monitoring of HVAC, facilities and elevators can ensure that the building can exceed performance standards.

Another example entails cost savings. The convergence of applications and solutions onto a single IP network reduces capital investment and ongoing maintenance and operational costs. This can be done by migrating existing investments into an open, inclusive platform which enables monitoring and controlling building systems to operate seamlessly as one homogenous resource.
Building owners can add revenue-generating services by providing video conferencing, digital signage, and WiFi that help in raising the value of the property. This is once again made possible through the converged network.

To tackle pressing sustainability challenges in Qatar, the country needs a comprehensive green infrastructure strategy, writes Dr. Cynthia Skelhorn, research specialist at Qatar Green Building Council.

In recent decades, the issue of climate change has gone from one that existed on the periphery to taking center stage. Rising temperatures, changes in rainfall patterns, overuse of natural resources, rising sea levels, and a decline in air quality are a few of the climate change impacts that present serious threats to ecosystems and communities while placing an immense burden on economies.

The National Oceanic Atmospheric Administration in its report, titled Explaining Extreme Events of 2014 from a Climate Perspective, reviewed 29 extreme weather events experienced across the globe in 2014, including heat waves, extreme drought and floods, to estimate the likelihood that the events were influenced by climate change. While not all, at least 14 events were found to be linked to human-induced climate change, often costing governments millions of dollars in damages.
For Qatar, predicted effects of climate change include not only air temperature increases, but also increased frequency and intensity of dust storms and sea level rise (SLR). The Arab Environment: Climate Change report titled Impact of Climate Change on the Arab Countries states that Qatar is one of the most vulnerable countries to SLR in the region, when taking into account projected figures that estimate the country could lose as much as 2.7 percent of its total land mass should the sea level rise by one meter. Given that most of Qatar’s development is in coastal areas, this could have significant impacts on the current mega projects.
In a major step towards a sustainable future, Qatar’s Ministry of Municipality and Environment recently completed the Qatar National Development Framework and the Municipal Spatial Development Plans.

To address these issues, governments and relevant organizations in the Gulf Cooperation Council region have launched various sustainable urban development initiatives focused on alleviating the growing threats of climate change.
In Qatar, Qatar Green Building Council established Green Infrastructure Interest Group (GIiG) in 2012 to promote awareness and protect the environment for generations to come. GIiG, currently being expanded and set to be renamed as Green Urban Planning and Infrastructure (GUPI), aims to achieve this by developing guidelines on best practices for urban development, including parks, streets, urban plazas, coastal locations and even car parks. Furthermore, the interest group plays a vital role in encouraging public understanding of Qatar’s natural ecosystems and their role in sustainable development of green infrastructure.

GIiG is also in the process of compiling ‘Doha: A Rough Guide to Healthy Cities’, which is due to be released this year. Highlighting the benefits of planning and designing a healthy city, the guide provides design and planning professionals, senior school students and advocates of sustainability, with practical guidelines on how to create a healthy city.
In a major step towards a sustainable future, Qatar’s Ministry of Municipality and Environment (MME) recently completed the Qatar National Development Framework (QNDF) and the Municipal Spatial Development Plans. The former is a national-scale urban planning document while the latter has set out plans that allocate each municipality in Qatar with 22 codes identifying their respective land use zoning. The MME has also announced its plans to invest QAR1.5 billion to develop 59 public parks in the country with development set to begin this year.
A recent study conducted by Qatar University on climate change awareness in the country found that a significant number of the population are aware of the effects of climate change and are eager to see adequate steps taken to tackle the immediate and long-term effects. The study cites that “nearly two in three respondents (63 percent) replied that they would like to see an increase in the number of parks and other green spaces in Qatar.”

Despite all these initiatives, a comprehensive climate change strategy is yet to be fully developed. The QNDF includes extensive acknowledgement of the need for climate change management and adaptation plans. Therefore, the time is critical to continue planning initiatives that integrate the climate change projections for Qatar. To create a thriving and sustainable environment that supports and conserves the existing ecology, Qatar must continue on the current path of considering the scientific evidence for projected changes, and develop adaptation strategies that are aligned with development goals in the long term.

Although the projections of climate change are worrying, Qatar is far better equipped than before to formulate an all-encompassing approach that addresses the economic, social and environmental effects of climate change. The growing scientific and research community in Qatar means we have the knowledge and expertise at our disposal to implement a viable and realistic green master plan – a plan that will work towards ensuring a sustainable future for Qatar, while making a significant contribution to alleviating the effects of climate change on a global scale.

New Energy
Qatar is looking to catch-up with neighboring countries in the Middle East by expanding its renewable energy infrastructure.
According to media reports, two national companies in Qatar are planning to set up a joint venture to invest in renewable energy projects. Qatar Electricity and Water Company and Qatar Petroleum are planning to join forces to set up a $500 million joint venture company with the purpose of investing in renewable energy projects.
Officials of the QEWC stated that the renewable energy resource potential available in Qatar is very encouraging. The potential to set up solar power projects is very high, and the company is expected to focus on solar power itself.

Qatar has already announced plans to set up 1,800 MW solar power capacity by 2020 which is expected to contribute up to 16% of the total power generation. The country has expressed intention to hold auctions for solar power projects on multiple occasions, however, these intentions have not yielded any substantial results so far.
Under a long-term program, Qatar plans to set up 10 GW of solar power capacity by 2030. Interestingly, however, these targets – or any other renewable energy targets, for that matter – are not listed under Qatar’s commitment to the United Nations through the Intended Nationally Determined Contribution (INDC).

Heavy Machinery
Qatar, with its excellent economic performance as one of the richest countries in the world, per capita GDP $70,000. Supported by the national government infrastructure project investment, contribute to the 2010-2015 five-year plan under the construction industry growth. With the government’s growing investment in education, health, health, road traffic and infrastructure, it is expected that construction equipment consumption will increase significantly during this period. WIMI (Global Market Intelligence magazine) has expected the annual growth rate of Qatar construction equipment Will reach 15.66%.

Qatar does not have any local equipment manufacturers, construction equipment transactions can only be through exclusive agency or equipment rental company. Therefore, the country’s construction equipment mainly rely on imports, the required types of equipment are mainly bulldozers, engineering vehicles, material handling equipment, concrete equipment, road construction equipment and other construction equipment. Which material handling equipment demand the most.

With a series of construction projects gradually launched, construction equipment compound annual growth rate will increase to 16.34%. Bulldozing equipment consumption compound annual growth rate has reached 18.50%. WIMI expects compound annual growth rate of 15.46% over the next few years. In 2009, the volume of concrete equipment transactions was $ 42.3 billion, and it is estimated that the consumption in 2015 will increase to $ 93.2 billion. Road construction equipment consumption compound annual growth rate of 9.71%. Construction vehicles in 2015 consumption will reach 3.79 million US dollars, construction equipment consumption growth rate is expected to 20.75%. There is no doubt that the Qatar construction equipment market is largely dependent on the country’s entire construction industry.

Since 2009, the Qatar construction market has benefited from the country’s economic stability, showing a steady growth. With the growth of hydropower demand, Qatar energy project progress is also accelerating the pace, such as The Pearl Qatar liquefied natural gas plant. The growth of all projects will bring new opportunities for the domestic construction equipment market.

Car and Motorcycle Accessories
China’s exports to Arabia and Africa each year more than 30 billion US dollars, auto parts and accessories accounted for about 20% of the export volume. China is expected to increase auto parts and accessories to Qatar’s exports by 30% and then exports to Kuwait, Iran and Africa through the region. China in recent years also under the vigorously improve the quality of auto parts and accessories, so that products more international competitiveness. In recent years, the Middle East imports a large number of auto parts products, for the replacement of spare parts accounted for more than 60%. In the field of auto parts Qatar market positioning in the low-end consumption, China’s goods are fully able to meet their quality requirements. Chinese products are more competitive than Japanese, Korean or Chinese Taiwanese products.

Dimension Stone
Qatar is one of the most active countries in the world’s construction market. Stone is a must for building materials. The market is strong, from small villas to large luxury hotels, commercial houses, shopping malls and so on.

Stone as one of the three major building materials, not only in Qatar, but in the world of construction costs in all countries have a large proportion. Therefore, the stone market demand and the development of the construction industry are closely related. Qatar with the domestic construction market continues to mature, but also gradually into the international track. Qatar local magazine WHY QATAR has done a market report, said the impact of the global economic crisis, Qatar between 2008 and 2010 a lot of construction projects were shelved, resulting in cement, concrete and stone industry frustrated. However, in Qatar after winning the World Cup in 2022, most of the projects in 2011 – 2012 began to return to work, building materials market pick up, increased volume, many industry companies have improved the situation. Second, the price of stone in the government under the control of macroeconomic policies, is expected to maintain the current level.

Furniture and Home Industry
Qatar local customers have been completely out of the import of European and American brand furniture, home products based thinking. 2016 Qatar completed residential project value of 5.8 billion US dollars, residential interior decoration and decoration hardware market value of 600 million US dollars.

With the impact of the World Championships in 2019 and the World Cup in 2022, the hotel industry in Qatar is growing rapidly. There are currently 20,000 hotel rooms in Qatar, but there are a huge gap between the 60,000 rooms required to host the World Cup. Will be completed before the World Cup. By 2030, the number of hotel rooms in Qatar will reach 90,000, so the rapid development of the hotel industry will drive the entry of Chinese hotel furniture household products.

Lighting lamps and Lanterns
With numerous major investment plans and construction projects in the Gulf countries continue to advance, the total amount of its project has reached more than 220 billion US dollars, the region lighting lighting market is also expanding. At present, many buildings used in the Middle East lighting lighting technology has reached the world advanced level of lighting technology. According to the latest commercial airport lighting market survey report, the next five years the global commercial airport lighting market will grow 34%. 2013 – 2014, the Middle East lighting market income of $ 518 million, accounting for more than half of the global total lighting market revenue.

Second, the driving force for the growing lighting market in the Middle East is the leading role of the government. According to the World Bank, greenhouse gas emissions from production and processing of artificial lighting have accounted for 85% of the total greenhouse gas emissions in the Middle East. Therefore, LED lighting technology has gradually become the main way to build green energy-saving buildings in the region. Government departments and private companies in the Middle East are also working to promote sustainable building design in accordance with international LEED (Leading Energy and Environment Design) and BREEAM (Institute for Environmental Assessment).

With the opportunity to come from the inevitable challenge for those who have been supplying products to other countries, almost all products have to be redesigned to adapt to the local environment. The first thing to consider is the climatic factors, the Middle East ultra-high temperature will inevitably affect the performance of thermal technology lighting products, such as LED lighting products. Air humidity, moisture, dust and dust on the lighting system performance are challenges.
According to Alvasset, a branch of Qatar Petroleum is principally engaged in a variety of downstream industrial projects. Qatar’s investment projects in various industries will also vigorously promote the oil industry LED lighting market, especially in the oil industry, commercial lighting, such as streets, venues and traffic lights, Qatar will eventually become the Middle East and North Africa LED lighting industry leader .